The quick rise of streaming services like Spotify Technology, Apple’s Apple Music and Alphabet’s YouTube has upended how people listen to and pay for music. Last year marked another milestone, as U.S. music streams during a 12-month period surpassed one trillion for the first time, according to a Nielsen Music report released on Thursday.
Despite this, Spotify shares (ticker: SPOT) fell as much as 1.9% in Friday trading, and were recently down 1%, at $156.23. But the Swedish streaming company has something else up its sleeve in 2020.
The back story. Spotify shares had a volatile ride in 2019. The stock climbed nearly 40% early in the year after 2018’s plunge, but then slid through the summer as heightened competition from Apple (AAPL) and Amazon.com (AMZN) made investors uneasy about the company’s future and, most important, its ability to turn traffic into money.
That’s why the stock soared sharply in October when the company unexpectedly reported a profit for the fiscal third quarter. It finished the year up 32%.
What’s new. The music-streaming industry celebrated another milestone year in 2019. Nielsen Music reported that U.S. music streams rose 30% last year to top one trillion—1.15 trillion, to be exact—for the first time. Meanwhile, album sales—both physical and digital—fell 19%. Streaming now accounts for 82% of music consumption in the U.S., according to Nielsen.
The growth was fueled by big releases from artists like Post Malone, Taylor Swift, and Ariana Grande, as well as breakthrough artists like Billie Eilish, Lizzo, and Lil Nas X, whose country-rap hit “Old Town Road” was the top-streamed song in 2019, with 2.5 billion total streams, according to Nielsen.
Despite the upbeat data, Spotify stock has fallen as much as 1.9% in Friday trading. Competition will remain fierce for the streaming company in 2020, not only from other music services like Apple Music and Amazon Music, but also the video platforms, where an increasing number of people are streaming their music.
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In 2019, on-demand audio streaming increased by 24%, but video streaming grew even more, by 41%. YouTube was the top-used music-streaming service globally, according to Nielsen. The rise of social video-sharing apps such as TikTok might also distract some traffic, which “helped usher in a new wave of viral hits,” according to the Nielsen report.
Looking ahead. For 2020, Wall Street is cautiously positive about Spotify. About 57% of analysts polled by FactSet rated the stock as Buy or equivalent, and 33% as Hold. The average target price is at $167, about 7% higher than its current level.
To achieve more growth beyond music streaming, Spotify is making big bets on the booming podcast business. It has been acquiring podcast companies, offering more content to draw subscribers, and bringing new advertisers to podcasts. Podcast hours streamed jumped up 39% quarter over quarter in the third quarter of 2019, and Spotify now touts over 500,000 podcasts on its platform.
At the Consumer Electronics Show in Las Vegas this week, Spotify also announced a new, proprietary podcast ad technology that will make key data—such as ad impressions, frequency, reach, and anonymized information about user age, gender and device type—available to podcasters and advertisers for the first time. The targeted, data-driven advertising will help Spotify better compete with the default podcast apps from Apple and Google.
Spotify will report its fourth-quarter 2019 financial results on Feb. 5, 2020. The company expects premium subscription to grow between 7 million and 12 million from the previous quarter, revenue to come in between €1.74 billion and €1.94 billion ($1.94 billion–$2.16 billion) for the fourth quarter, with an operating loss between €31 million and €131 million.
Write to Evie Liu at evie.liu@barrons.com
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January 11, 2020 at 03:23AM
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Spotify Stock Is Falling Amid Growing Competition, Even After Music Streaming’s Record Year - Barron's
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